Improving credit costs may drive stronger earnings growth for SBI Card

Better asset quality and lower delinquencies are expected to support earnings, though slowing card spending, higher funding costs and limited margin expansion remain risks

Credit card data for July 2026 indicates moderation in momentum. Industry spending grew 7.4 per cent Y-o-Y, compared with 10 per cent growth in June 2026, to ₹2.1 trillion. Transaction volumes grew 24.5 per cent Y-o-Y, but value per transaction declined 1 per cent M-o-M and 14 per cent Y-o-Y to ₹3,442. Monthly industry spending growth has slowed from 22.5 per cent Y-o-Y in March 2025 to 8.9 per cent in March 2026 and 7.4 per cent in July 2026. Net new card additions were 1.27 million, up 11 per cent M-o-M, in July 2026, the third consecutive month with over 1 million card additions. HDFC Bank led additions at 230,000, or 18.2 per cent of total industry additions, followed by SBI Card at 183,000, or 14.4 per cent, and ICICI Bank at 170,000, or 13.4 per cent.

 

On a per-card basis, average monthly spending was ₹17,064, down 2.1 per cent Y-o-Y and up 2.4 per cent M-o-M.

 

SBI Cards and Payment Services (SBIC) outperformed, with spending growing 22 per cent Y-o-Y, compared with 34 per cent growth in June 2026, but its spending share fell 140 basis points M-o-M to 19 per cent. SBI Card’s transaction volume grew 7 per cent Y-o-Y, with net additions of 0.18 million in July, up 2.7 times Y-o-Y. 

 

The rebound in new card issuances is a healthy signal, and the M-o-M rise in spending in July over June is also a cause for optimism. It could translate into higher spending during the festival season.

 

SBIC offers customised products while using its parent’s platform for cross-selling and process integration. SBIC has 22.6 million cards in force (CIF), with a market share of 18.6 per cent. CIF grew 2.3 per cent Q-o-Q. Its spending market share was 19.5 per cent in June 2026.

 

In Q1FY27, SBIC’s reported net profit grew 20 per cent to ₹664 crore. Pre-provision operating profit (PPoP), at ₹1,840 crore, was down 12 per cent Y-o-Y and 3 per cent Q-o-Q. Growth in assets under management (AUM) was low at 3 per cent Y-o-Y. Q1FY27 saw improved asset quality and lower credit costs because of tighter underwriting, enhanced portfolio monitoring and stronger collections. Gross Stage 2 assets moderated to 3.57 per cent, down 116 basis points Y-o-Y and 10 basis points Q-o-Q, while gross Stage 3 assets improved to 2.04 per cent, down 37 basis points Q-o-Q. Both Stage 2 and Stage 3 portfolios are at their best since Covid.

 

SBIC saw a reduction in gross credit cost from 7.7 per cent to 6.5 per cent. Net interest margins (NIMs) declined by 30 basis points because of a higher cost of funds (CoF). Return on assets (RoA) was 3.9 per cent, while return on equity (RoE) was 16.5 per cent. Transactors remained high as a share of receivables, and the share of revolvers did not improve. Lower credit costs were due to lower delinquency, fewer write-offs and an improvement in Stage 3 assets.

 

The management says no customer cohort shows signs of stress. SBIC expects a gradual moderation in credit costs through FY27. However, there are caveats about potential second-order effects from geopolitical tensions. The management also expects receivables growth to accelerate in H2FY27, driven by the festival demand cycle, among other factors.

 

In Q1, SBIC’s 28-basis-point Q-o-Q margin compression was due to an increase in CoF, up 13 basis points Q-o-Q, and yield compression of 20 basis points. While the management expects CoF to trend slightly higher, the company is confident of maintaining NIMs around current levels through funding optimisation, dynamic liability sourcing and portfolio mix. SBIC sees levers to support yields, such as improving the share of equated monthly instalment (EMI) balances in the receivables mix, rationally enhancing credit limits for eligible customers and passing on the higher CoF for incremental lending. The revolver mix is expected to be maintained at 22 per cent, with incremental lending growth coming from EMI balances with a favourable asset mix. NIMs may remain around 10.8 per cent, plus or minus 10 basis points.

 

The company believes the operating environment is gradually improving, with moderating credit costs, healthy retail momentum and improving customer acquisition. NIM expansion may have a ceiling because of the higher CoF; however, portfolio mix optimisation, EMI penetration and disciplined yield management should help maintain margins. While cost ratios may remain range-bound in this environment, some operating expenditure growth is inevitable as volumes increase. Further moderation in credit costs is key.

 

New sourcing improved through both SBI Bank and other channels despite tight acquisition filters and a focus on higher-value customers. Retail spending grew 5 per cent Q-o-Q and 14 per cent Y-o-Y.

 

Corporate spending was stable Q-o-Q and rose 125 per cent Y-o-Y. Fee income grew 10 per cent Y-o-Y because of higher interchange fees resulting from spending growth. Receivables grew 2.4 per cent Q-o-Q, with the share of revolvers steady at 22 per cent and the share of EMI and instalment loans rising to 33 per cent.

 

Given its grip on asset quality, the focus is on improving the sourcing run rate and pursuing receivables growth. There is no concrete guidance on asset growth, though the management says it is confident. The cost-to-income ratio is expected to remain between 56 per cent and 58 per cent. Gross credit cost is expected to moderate further, and the sharp improvement in credit costs could trigger faster earnings growth.

 

Some analysts believe RoA could rise above 4.5 per cent, while RoE may increase beyond 17.5 per cent. Risks include slowing growth trends, any deterioration in asset quality, and macroeconomic and global risks.